Active Vs Passive Funds: Which mutual fund gives more benefits? Understand the complete difference between active-passive funds

Active Vs Passive Funds: While investing in mutual funds, a question often arises whether to choose active fund or passive fund? Both are popular options, but their working method and risks are quite different. Your investment objective, risk appetite and time horizon decide whether you should choose active or passive funds.

Active funds are those in which fund managers continuously track the market and decide how much to invest in which stock, that is, the entire strategy is based on human experience and research. Because of this, there is more risk in active funds, but the chances of getting returns are also higher.

Funds follow an index
Passive funds copy an index like Nifty50, Sensex, Nifty IT etc. Fund managers buy stocks only in the same proportion as they are in the index. Therefore the risk is less and the cost is also less.

When to choose active funds?

• Aim for high returns – If you want to beat the market and aim for high returns, then active funds are right for you.
• Have faith in a sector or theme – When fund houses launch funds on a particular theme (like BFSI, Tech, Consumer) and you believe in the growth of that sector, then active funds become a good option.
• The record of the fund manager should be excellent – Investing in active funds of experienced fund managers, whose performance has been excellent, can be beneficial.

When to choose passive fund?

• Want to keep the risk low – Conservative investors, who like stable and calm investments, choose passive funds.
• Want to build a bigger corpus in the long term – If your target is to make 5X or 10X returns and you rely on Nifty or Sensex, then passive funds are an easier and safer route.
• If you have full faith in a particular index – like Nifty100, NiftyMidcap100 and see the future, then investing in passive funds is an easy and effective way.